Morgan v. . Bon Bon Co.

The appellant recovered a judgment against the respondent because the latter refused to *Page 25 deliver to him certain shares of its capital stock in payment for services rendered in accordance with the terms of a contract made between the appellant and the organizers of the respondent, and the obligations of which contract it is claimed the latter had assumed. To the reasons assigned for the reversal of the judgment by the Appellate Division others are now added in the argument made by the respondent for the affirmance of such judgment and all of these will be briefly considered after a statement of the essential facts.

Four men made a contract for the organization of the respondent whereby, amongst other things, loans by one of the number to the corporation were provided for. At or before the time when this agreement was executed, one of the four in substance proposed that appellant should be employed to lay out and put into operation a system of bookkeeping for the corporation thus to be organized. The result of this proposition was that there was added to the principal agreement a supplementary paragraph, which is the important one in this litigation, and whereby it was provided: "It is understood between the undersigned, organizers of the Bon Bon Company, that after the company shall have repaid to A. Maynard Lyon all the advances that he shall make to said company, and its other debts, there shall be issued to George W. Felter Seventy-five shares of the stock of said company, and to Harlan D. Morgan twenty-five shares of the stock of said company, in payment of the amounts to become due to them from said company for services to be rendered by them to the company, to its satisfaction."

On the day this agreement was executed the respondent corporation was organized, all of its stock then issued being issued to the four organizers who for the term of at least a year were its directors and officers. After the corporation was organized the appellant performed for it the services above indicated and this was done *Page 26 with the knowledge and apparent approval of the officers of the corporation who as organizers had made the contract with him, and were, of course, fully cognizant of the terms thereof. These services were continued until the appellant was advised that no more were needed and after a lapse of considerable time, the respondent having refused to deliver to him the shares of stock provided by the contract, this action was brought wherein damages were recovered for such failure on a valuation of much more than the par value of the stock.

It is urged in behalf of the respondent that the complaint does not sufficiently allege any adoption by the corporation of the terms and obligations of the contract made by the men who organized it with the appellant; that there was no evidence of any action by the respondent which resulted in the adoption of the contract and in imposing upon it the obligation to carry out the terms thereof; that the contract provided for the issue of stock with which to pay for services to be rendered in the future and that this was unlawful; that the contract even though otherwise binding was invalidated by the fact that the services performed by appellant were worth much less than the par value of the stock agreed to be issued in payment therefor. We do not think that any of these defensive contentions can be sustained.

While it is true that the complaint does not in terms allege that the respondent adopted and became bound by the terms of the contract made by its organizers with appellant, we think that it does set forth fairly well the facts upon which this conclusion and claim can be predicated. Moreover, as a material justification for this interpretation it is to be noted that all of the facts entering into the controversy between the parties were admitted or proven without any objection that evidence thereof was inadmissible under the complaint.

We think that the evidence thus admitted did permit *Page 27 the jury to find that the respondent had adopted the contract made by its organizers with the appellant and had become bounden by the terms thereof. These organizers became the corporation. The contract was made in view of the organization of the respondent and for its benefit. With the knowledge and approval of the men who organized the corporation and then became its stockholders and officers, the appellant was permitted to perform the services which had been contracted for, and the corporation chargeable through its officers with full knowledge of the contract under which these services were being rendered, received the benefit thereof. It is well established that a corporation which under such circumstances takes the benefits of a contract may be held to have adopted and assumed also its obligations. (Morawetz on Private Corporations [2d ed.], § 549; Cook on Corporations, § 707; Bommer v. Am. Spiral Spring B.H. Mfg.Co., 81 N.Y. 468, 473; Burden v. Burden, 8 App. Div. 160,167; affd., 159 N.Y. 287; Oakes v. Cattaraugus Water Co.,143 N.Y. 430; Rogers v. N.Y. Texas Land Co., 134 id. 197, 211;Shaffer v. Mohawk Valley Br. Corpn., 221 N.Y. 697.)

The Appellate Division in reversing the judgment of the trial court especially relied upon the view that the contract with appellant provided for the issue to him of stock in advance of the services to be rendered and that the corporation had no power to make or adopt a contract to issue its stock for services to be rendered in the future, the prohibition against so doing being found in that provision of the Stock Corporation Law (Cons. Laws, ch. 59) (§ 55), which says: "No corporation shall issue either stock or bonds except for money, labor done or property actually received for the use and lawful purposes of such corporation." Our interpretation of the contract eliminates the objection thus urged for we do not think that it provided for the issue to appellant *Page 28 of stock in payment for services thereafter to be rendered by him. The contract seems to us to provide for the rendition of services by appellant and for the payment therefor by stock after such services had been rendered for the company "to its satisfaction." Of course the contract looked to the future rendition of services as it naturally would, but it did not look to the payment by an issue of stock in advance of the services. This interpretation by us is in accordance with the practical construction placed by the parties on the contract. There was no claim by the appellant to any stock or payment until after his services had been completed.

Lastly, we are not aware of any law which sustains the proposition that an honest, bona fide contract made by a corporation to pay for services with a certain amount of stock, is rendered illegal because it could be found in the end that the value of the services was less than the par value of the stock. In this particular case the receipt by the appellant of any stock was subject to the payment in full of debts by the corporation which latter event might never happen. The actual value of the stock as distinguished from its par value was subject to the contingencies which attend the launching of any new enterprise and it might very well have turned out that the actual value of the stock would be much less than the services were worth. Under such circumstances we think it was permissible for the corporation either by an original contract or by adoption of one which had already been made to agree with the opposite party on what should be deemed to be fair compensation in stock for the services to be rendered and that this contract is not to be avoided because the final result in respect to values has gone to the disadvantage rather than to the advantage of the corporation.

We think that the judgment of the Appellate Division *Page 29 should be reversed and that of the trial court affirmed, with costs in this court and in the Appellate Division.